Business innovation slows as economic pressures rise

Almost half of all Australian businesses (46 per cent) reported some innovation activity in the two years up to 30 June 2023, according to data released today by the Australian Bureau of Statistics (ABS). 

Robert Ewing, ABS head of business statistics, said: “This is a drop from 52 per cent in the two years to 30 June 2021. It follows a spike in process innovation driven by the COVID-19 pandemic that saw businesses trying to adapt to operating under heavy safety measures.

“Businesses are now shifting their focus away from process innovation, to concentrating on their goods and services innovation. They’re now adjusting to the current economic conditions as cost-of-living pressures hit households and businesses.”

Economic pressures continued to be the leading barrier to innovation with 1 in 5 businesses (19 per cent) reporting a lack of access to additional funds. This was followed by a lack of skilled workers in the labour market (16 per cent), and a lack of skilled workers within the business (14 per cent). 

The financial pressures also impacted spending on innovation. Just under a third of businesses that reported innovation activity (30 per cent) spent nothing on their innovation. 

Of the businesses with innovation activity in the two years to 30 June 2023, three out of every four businesses (74 per cent) reported spending less than $25,000 on innovation. For micro businesses (businesses with four or fewer employees), over 80 per cent spent under $25,000 on innovation. Of these, 32 per cent spent nothing and 49 per cent spent less than $25,000.

“Of the businesses that spent nothing on their innovation activity, some were doing this by improving their marketing activities to attract new customers. We heard businesses were using social media to advertise and promote their goods and services. While others focussed on improving internal work practices to adapt to economic conditions,” Mr Ewing said.

“This shows that businesses continue to find ways to innovate that don’t require substantial expenditure, which is especially important for very small businesses.”

Innovation was also more important to the income of smaller businesses. Micro businesses had the greatest proportion (8 per cent) of earning three quarters or more of their total income from new or improved goods and services. In contrast, less than 1 per cent of large businesses (businesses with 200 or more employees) said their new and improved goods and services generated three quarters or more of their total income.

This release saw the return of questions on innovation expenditure and the type of activities that businesses were spending their money on. Of businesses that spent money on innovation, 41 per cent focused on buying machinery, equipment, or technology. This is followed by marketing activities and training, both at 37 per cent. 

“This was also the first time businesses were asked about the environmental benefits of their innovation activity. Of the businesses that implemented new or improved goods and services, 33 per cent saw environmental benefits,” Mr Ewing said. 

“Environmental benefits were experienced across businesses of all sizes, ranging from 45 per cent of large businesses to 29 per cent of micro businesses.”

These benefits included the ability to recycle products after use (16 per cent), reduced energy use (15 per cent), and extend product life (13 per cent).

Businesses in the Northern Territory were most likely to report innovation activity, at 48 per cent, in the two years to 30 June 2023. This was followed by Queensland and Victoria, where both had 47 per cent of businesses reporting innovation activity.

The ABS would like to thank businesses for their continued support in responding to our surveys.